The high voltage vision of Germany’s Environmental Council

The energy transition process in Germany is suffering from its success. The German Advisory Council on the Environment (SRU) calls it a critical phase in its youngest special report “Shaping the electricity market of the future.” There is a need for reform, but the reforms should not put the development processes at risk. One of the central political tasks for the coming term of parliament will be to find the right balance between continuity and change. A closer look at the conditions the SRU advocates as necessary.

(c) Fernando Estel
Germany has an obligation to fulfill. Climate-neutral electricity generation is necessary because the country has committed itself to the target of reducing greenhouse gas emissions by at least 80 percent by 2050, compared to 1990 levels. This is considered to be the minimum contribution to the target of preventing a global temperature rise of more than 2°C above pre-industrial levels. It requires moving to a power system essentially based on renewable sources, as substantial emission reductions are easier and less expensive to implement in the electricity sector than in other sectors.

The impact of this vision is far reaching, because it also touches other EU member states regarding the interconnectivity of the European energy and economic markets. Ensuring a high level of supply security is pre-emptive, especially because long-term political agreements are fundamental for results and politicians are renowned for their swaying.

For an electricity market largely dominated by renewable energy, the answer to this and other issues must be different, the report states, from those appropriate to the present situation. The SRU has therefore decided to adopt a back casting approach that works backwards from the goal in view. First it identifies plausible characteristics of a future electricity market based on renewable energy. Then it proposes steps for the transition that are in line with the long-term perspective. The goal is not something to reach for, but a result that must be realized. However, it should entail the necessity of interstate cooperation where up till now the EU energy market consists of 28 more or less autonomous strategies - despite central agreements.

The first assumption of the SRU can be qualified as realistic: In several decades’ time wind energy and photovoltaic systems will be the main technologies of the future energy system. At times of strong winds or bright sunshine, electricity generation from renewable sources will be very high, but at other times it may be low. Such fluctuations may take place very quickly, may cover a considerable range, and are only foreseeable to a limited extent. That leads to the conclusion that the entire energy system will have to be adapted to these new challenges and become more flexible. One of the crucial conditions is putting electricity on the throne.

The SRU puts it this way: ’In order to achieve the climate objectives, the demand for energy in all sectors of use (heating, transport and industrial processes) should increasingly switch to electricity as the most important form of energy. The present separation of sectors will disappear. An increasingly integrated energy system will emerge with many new flexibility options. This will make it possible to divert temporary surpluses of electricity into other use sectors (e.g. heat or electric mobility). It will also enable the market to absorb temporarily very high levels of electricity generation.’

Keeping the balance while moving forward

Altogether this requires an uninterrupted shift, preferably without any political interference. If we go for it we have to go all the way. SRU is conscious of the imperative “ensuring continuity of supply during transition”. The SRU is optimistic in this respect, saying that the Renewable Energy Sources Act (EEG) is a successful model and a driving force behind the German Energiewende (transformation of the energy system). At comparatively low cost, it has triggered substantial growth of renewable energy. The success story is spreading beyond Germany’s borders. Similar systems have been introduced in many other countries. At present this development is one of the encouraging factors in the international climate policy. The Energiewende provides answers to the foreseeable increase in fossil fuel prices and the risks and serious environmental follow-on costs of the present power generation structure, while offering perspective for a sustainable energy supply system. Additionally the transformation of the power generation system is a great opportunity for innovation.

When I wrote ‘putting electricity on the throne’, the SRU points out that this shift means subordinating conventional power generation to the needs of renewable energy. In the view of the SRU there is no middle ground.

The growing proportion of renewable energy makes great demands on the flexibility of conventional power generation. It has to adapt to the intermittency of wind and solar power. At present there is a surplus of non-flexible capacity from nuclear and lignite power stations. This results in low spot market prices, exports of surplus power to other countries, and profitability problems for gas-fired power stations. However, gas power stations are needed as a flexible means of meeting the residual load requirements. The continuity of supply also demands the continuity of balance among different factors like the role of power plants, new investments and effective CO2 pricing.

The most important individual objective - over and above the phasing-out of nuclear power – is to reduce the overcapacity of inflexible power stations. This will improve market conditions for flexible power stations, especially gas-fired ones. This applies in particular to power generation from lignite, which is both relatively inflexible and very CO2 -intensive.

The success of the Energiewende, the report emphasizes, is therefore crucially dependent on an adequate CO2 price signal. In other words: a substantial rise of CO2 prices. It is a plea we have heard many times before, but up till now hesitation in political circles rules as is often the case when financial or economic factors come into view.

The SRU therefore recommends the German Government to take action on a European level, urging effective measures to restore the incentive function of the emissions trading scheme. This particularly includes an ambitious European climate objective for 2030, as well as the temporary withdrawal of emission allowances during the current trading period (“backloading”). This should form part of a consistent overall climate and energy policy package, which must also be compatible with the long-term objectives for 2050.

If moves for a speedy reform of the European emissions trading scheme are unsuccessful, Germany should follow the British example and introduce a national minimum carbon tax. The SRU however prefers these necessary steps to be part of the new 2030 policies.

The growing proportion of renewable energy and Germany’s decision to finally phase out nuclear power by 2022 present new challenges for ensuring security of supply. Under current market conditions, neither the construction of new flexible gas power stations nor the continued operation of existing ones is assured. To ensure the provision of adequate and flexible generating capacity, various approaches to capacity markets and a strategic reserve are currently under discussion. In the final analysis capacity markets are mechanisms to subsidize new power plants or maintain existing ones. Otherwise they provide incentives to invest in flexibility options. The strategic reserve is a safeguard against supply shortage situations. Power stations that would otherwise be withdrawn from the market are kept operational for backup purposes.

Restructuring the governing energy organization

According to the SRU it would make more sense to institutionalize all responsibilities under the policy-making powers of the Federal Chancellor, rather than creating an energy ministry. The SRU advocates establishing a steering body with the rank of a Minister of State within the Federal Chancellery.

A large number of actors from politics, industry and society are involved in implementing the Energiewende. Even individual elements of the German transition process, like the electricity market reform, are complex and require a great deal of coordination. And the need for coordination between the various elements is all the greater, e.g. between grid expansion and the growth of renewable energy, or between climate policy and the development of renewable energy sources. In this connection it is often suggested that responsibility for energy policy should be bundled in a separate energy ministry.
There are quite some arguments that speak against such a decision. Among others the SRU holds the opinion that the coordination requirements amply exceed the competence of a single ministry. The Energiewende is not merely the responsibility of the economics and environment ministries. And finally, each ministry is a contact for specific stakeholder groups. If these interests are divided over several ministries, this will stimulate competition and innovation. Over the past years this has been a driving force behind the Energiewende.

The SRU recommends an increasing and systematic transfer of numerous concrete implementation tasks, the technical and economic basic knowledge and fine-tuning of the Energiewende to the Federal Environment Agency and the Federal Network Agency. These two authorities should also be required to coordinate under the rule of common agreement. This reasoning can hardly be contested. Moreover, one gets the feeling that on a EU level similar considerations are valid too.

Especially in view of the diversity of actors and levels involved and the great variety of interests, the
Energiewende needs a clearly defined vision and a binding goal for the various processes which cannot be controlled centrally. For this reason the SRU recommends passing a Climate Change Act laying down the climate objectives for Germany up to 2050. The Climate Change Act should set out these objectives in ten-year steps. It should also formulate sectoral objectives for the climate-relevant sectors: transport, agriculture, industry, small scale industries, trade, and services, as well as heat. The Greenhouse Gas
Emission Allowance Trading Act (TEHG) and other climate-relevant acts should be merged with the Climate Change Act. The objectives of this act should also be underpinned by a sub-statutory program, which should be a mandatory requirement. This program should lay down measures and regular monitoring processes. A Climate Change Act can improve the consistency of political decisions and reinforce broad public acceptance of climate and energy policy measures.

Further publications of the German Advisory Council on the Environment

SRU (2008): Environmental Protection in the Shadow of Climate Change. Environmental Report. Berlin: SRU.
SRU (2011): Pathways Towards a 100 % Renewable Electricity System. Berlin: SRU.
SRU (2012): Responsibility in a Finite World. Environmental Report. Berlin: SRU.
SRU (2013): Fracking for Shale Gas Production. Berlin: SRU.
SRU (2013): An Ambitious Triple Target for 2030. Comment to the Commission’s Green Paper “A 2030 Framework for Climate and Energy Policies” Comment on Environmental Policy 12. Berlin: SRU.